Crude prices fell Monday, a day after major oil producers reached a historic agreement to cut oil production, as analysts from Goldman Sachs and elsewhere said the moves were “too little, too late” after weeks of a damaging price war between Saudi Arabia and Russia.
After an initial 4% surge, West Texas Intermediate crude for May delivery CLK20, +1.31% fell 17 cents, or 0.7%, at $22.59 a barrel. Last week, WTI fell nearly 20%, while June Brent crude BRNM20, -0.69%, the global benchmark, ended the period down nearly 8%. Brent was last down 36 cents, or 1.3%, to $31.08 a barrel.
Sunday’s deal came after President Donald Trump intervened to compensate what Mexico could not add to the proposed cuts. After several days of intense negotiations, members of the Organization of the Petroleum Exporting Countries and allies, collectively known as OPEC+, agreed to cut overall crude-oil production by 9.7 million barrels a day starting on May 1 through June 30 of this year.
That total would drop to around 8 million barrels a day from July 1 through Dec. 31, followed by 6 million barrels in cuts from Jan. 1, 2021 to April 30, 2022. Analysts feared lack of a deal could have ended in a collapse of prices on Monday, but some see oil prices still under pressured, given demand has been crushed by coronavirus-driven economic shutdowns.
“Given the difficulty for most producers outside of core-OPEC to implement large cuts, today’s agreement leaves the voluntary cuts as still too little and too late to avoid breaching storage capacity, ensuring that low oil prices force all producers to contribute to the market rebalancing,” said Damien Courvalin, Callum Bruce and Jeffrey Currie, analysts at Goldman Sachs, in a note to clients.
“Ultimately, this simply reflects that no voluntary cuts could be large enough to offset the 19 mb/d average April-May demand loss due to the coronavirus. We therefore reiterate our view that inland crude prices will decline further in coming weeks as storage capacity becomes saturated and expect further weakness in WTI timespreads and crude prices in coming weeks, as already presaged on Friday, with downside risks to our short-term $20/bbl forecast,” said the team.
A shutdown of major global economies due to the deadly coronavirus has taken a heavy toll on oil demand.
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